Treasury Proposes Low-Cost Investment Rules for Trump Accounts

The U.S. Treasury Department proposed new guidance Thursday for investments held in Trump Accounts, setting out a framework meant to keep the children’s accounts focused on low-cost, diversified index funds as the program expands beyond its initial investment setup.

The Treasury proposal is aimed in part at future Trump Account trustees, including trustees that may receive accounts through rollovers. Treasury said an eligible index under the proposed framework must be designed primarily to measure the performance of a broad segment of the U.S. or global equity market using objective financial criteria. The department said the approach is intended to keep investment choices simple, transparent and inexpensive.

The announcement builds on restrictions already written into the Trump Account framework rather than replacing the program’s current investment lineup. Section 530A and earlier IRS guidance generally limit investments during a child’s growth period to mutual funds or exchange-traded funds that track a qualified equity index, do not use leverage and keep annual fees and expenses below 0.1% of the investment balance.

The rules leave little room for complex or narrowly focused funds

Trump Accounts are designed differently from ordinary brokerage accounts. During the growth period, which generally lasts through December 31 of the year before the beneficiary turns 18, the account cannot be used to buy individual stocks, bonds, money market funds or other assets that fall outside the eligible-investment definition.

The IRS’s earlier Trump Account guidance says an eligible investment generally must be a domestic mutual fund or ETF that tracks a qualified index. The S&P 500 qualifies by statute. Other indexes must be composed of equity investments primarily in U.S. companies and have regulated futures contracts traded on a qualified board or exchange. Industry-specific and sector-specific indexes are excluded, although an index based on market capitalization can qualify.

That earlier guidance also drew a line between passive index tracking and strategies that try to alter the index’s return. A fund can qualify if its objective is to replicate an index before fees and expenses, but not if it seeks inverse performance, tries to outperform the benchmark or changes exposure based on an adviser’s judgment. A leveraged ETF also does not qualify when its design causes the fund to move materially more than the underlying index.

The 0.1% ceiling applies to annual fund fees and operating expenses. The IRS said prospectus disclosures would generally be used to determine whether a fund meets the threshold. That restriction is important because the accounts are intended to remain invested for many years, leaving recurring costs to compound alongside investment returns.

Treasury’s new announcement adds another layer to that framework by saying eligible indexes should measure a broad segment of the equity market using objective financial criteria. The release refers to broad segments of the U.S. or global equity market. Earlier statutory and IRS language, however, defines a qualified index around the S&P 500 or another index composed primarily of U.S. company equities. Treasury’s Thursday release did not provide a more detailed explanation of how the reference to a global equity market would operate alongside that existing qualified-index test.

SPYM remains the default as Treasury builds out more choices

The proposal does not immediately change what families see inside accounts already operating through Treasury’s initial platform. Treasury announced on July 1 that all contributions at launch would be invested by default in the State Street SPDR Portfolio S&P 500 ETF, or SPYM, which tracks the S&P 500 and falls below the statutory fee ceiling.

Treasury also selected four additional low-cost ETFs that it said would become available for investment elections in the coming months: the iShares Core S&P 500 ETF, Vanguard Total Stock Market ETF, State Street SPDR Portfolio S&P 1500 Composite Stock Market ETF and iShares Core S&P Total U.S. Stock Market ETF. Until the election functionality becomes available, contributions remain in SPYM.

The structure gives the program a narrow initial menu rather than an open brokerage window. The selected funds all track broad U.S. equity benchmarks, which fits the program’s emphasis on diversified index exposure rather than stock picking or specialized trading strategies. Treasury has said responsible parties, generally a parent or other person managing the account for a child, will eventually be able to choose how to allocate money among the additional options.

The trustee framework matters because the program is expected to permit accounts to move beyond the original setup. Treasury previously designated BNY as the government’s financial agent for the program, with Robinhood serving as brokerage and initial trustee. Earlier IRS guidance also allows a beneficiary’s entire Trump Account balance to move through a trustee-to-trustee transfer into another Trump Account during the growth period. The new investment framework is intended to establish criteria that future and rollover trustees can apply when determining what funds they may offer.

Trustees will have to police eligibility over time

Investment eligibility is not only a question at the moment a fund is first added to an account. The earlier IRS guidance requires trustees to have procedures that prevent Trump Account money from being invested in ineligible assets during the growth period. Trustees must offer only eligible investments and maintain a default eligible investment for cash that needs to be invested.

Cash and money market funds generally are not eligible investments during that period. The IRS has allowed limited temporary cash holdings when money has just arrived as a contribution or distribution, or when securities have been sold and the proceeds are waiting to be reinvested. The agency also said trustees need reasonable ongoing monitoring to determine whether a fund remains eligible if its fees rise or the index it tracks stops meeting the requirements.

Those monitoring obligations help explain why Treasury is developing a more formal designation framework for future trustees. A fund that complies when an account is opened may not always remain under the fee cap or continue tracking an eligible index. The earlier IRS notice said Treasury and the IRS were considering safe-harbor procedures for how frequently trustees should evaluate funds and how they should handle an investment that later becomes ineligible.

The program itself has moved quickly from rulemaking into operation. Trump Accounts began accepting contributions on July 4. Eligible U.S. citizen children born from 2025 through 2028 can receive a $1,000 federal pilot contribution, while accounts can also receive money from families, employers and certain other contributors under separate contribution rules. Treasury said in mid-July that more than 6.5 million families had signed up, including more than 1.5 million children eligible for the $1,000 federal contribution.

The investment proposal therefore arrives after the first accounts have already begun operating, but before the full range of investment elections and future trustee arrangements has been rolled out. Treasury has said it will announce when the additional investment-election functionality becomes available and provide instructions for responsible parties who want to change allocations. Thursday’s release did not give a date for that next step.